Thursday, July 20, 2006

Preferred Stock

While preferred stock is a form of stock, in many cases it's listed as a fixed-income investment. The reason is because preferred stock behaves more like a bond, although it doesn't have a fixed maturity date. It is called "preferred stock" because shareholders receive preferential treatment with this type of stock. For example, preferred stock shareholders are paid dividends before common stock shareholders. Another example is that in the event of a corporate liquidation, preferred stock shareholders can claim corporate assets before common stock shareholders (but after bond holders)

Preferred stock typically pays an investor a fixed dividend rate in a similar way that the coupon rate is paid on a bond. Preferred stock share prices fluctuate inversely with changes in interest rates. While the par value on preferred stock can vary, it will usually be about $25 per share. Dividends paid on preferred stocks are a fixed percentage of par value.

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